Step into the Crypto Trading World With RVI: A Simple Lesson

There is an indicator that can provide valuable insights by analysing the daily opening and closing prices of assets. That is none other than the Relative Vigor Index indicator. It’s an amazing indicator and is widely used in trading. However, its effectiveness in crypto trading remains uncertain due to the cryptocurrency market’s 24/7 operation and fixed opening and closing times at 00:00 UTC. Nevertheless, RVI or RVGI can still be applied effectively in a crypto market with a strong trend. Let’s delve into the world of the RVGI to learn more.

1. Relative Vigor Index: The Basics

The Relative Vigor Index indicator is a vital crypto market tool. It measures trend strength by comparing a crypto’s closing price to its price range, and then smoothes this data using a Simple Moving Average. 

Precisely, it is like checking if a crypto’s recent closing prices are consistently higher or lower compared to its overall price range, indicating the strength of the current market trend.  

2. Working on Relative Vigor Index

In a Relative Vigor Index indicator, you typically see two lines:

• RVI Line: This is the main line representing the RVI values, which measures the strength of a trend.

• Signal Line: This is a Simple Moving Average applied to the RVI values. It helps smooth out the RVI data, making it easier to identify potential trend changes and trade signals.

3. Calculating Relative Vigor Index

Here is a simple breakdown of how to calculate the Relative Vigor Index indicator. 

RVI – (Close – Open) / (High – Low)

• Find the difference between the closing price (Close) and the opening price (Open).
• Find the difference between the high price (High) and the low price (Low).
• Divide the result from step 1 by the result from step 2.
• Apply a Simple Moving Average (SMA) to the RVI values calculated in Step 3. Typically, this is done over a specific period, like 10 days.

This process provides you with the RVI values, which indicate the strength of the trend in the crypto market. 

The Signal Line for RVI is typically a 4-period SMA applied to the RVI values. To calculate this: 

• Calculate the RVI values as mentioned above.
• Then, take the RVI values and apply a 4-period SMA to them. This means you add up the RVI values for the last 4 periods and divide the sum by 4 to get the SMA values for that period.

4. Steps to Launch Relative Vigor Index on a TradingView Chart

• Sign in to TradingView
• Open the chart for the cryptocurrency you want to analyse
• Click on ‘Indicators’
• Search for ‘Relative Vigor Index’
• Select the indicator
• Customise the RVI settings if needed
• The customised RVI will now appear on your chart
• Start analysing the chart using the RVI

5. How to Analyse A Chart Using Relative Vigor Index

The most common use of RVI in trading analysis is RVI Crossovers and RVI Divergence. 

• RVI Crossover

Look for the RVI line crossing above the signal line. This suggests that the price is likely to rise.

Conversely, if the RVI line crosses below the signal line, it indicates a potential price decline.

The reliability of these signals is higher when the RVI line is far from the center zero line.

• RVI Divergence

For a bullish divergence, check if the price creates lower lows while the RVI forms higher lows. This suggests a potential upward price movement.

In contrast, a bearish divergence occurs when the price makes higher highs, but the RVI forms lower highs. This indicates a potential price decrease. 

Also Read: Triangular Moving Averages: Reducing Noise in Your Crypto Trading

6. Endnote

While the Relative Vigor Index is a highly valuable tool for crypto trading beginners. It is extremely important to remember that it is not foolproof. Market conditions can change unexpectedly, and RVI has its limitations. Use it as part of a comprehensive trading strategy.